Growth is one of the primary objectives of every business, and businesses can grow through mergers or acquisitions. These strategies are the most common, albeit misunderstood expansion tactics in the contemporary business landscape. While both terms refer to the coming together of two businesses, there are some significant differences in how this happens. Companies creating a growth strategy should distinguish between these two corporate restructuring strategies.
A merger is a combination of two separate businesses into a single new legal entity. The new entity has a new management structure, ownership, and a unique name that capitalizes on its competitive advantage and synergies. A merger occurs either by way of amalgamation or absorption.
An acquisition, on the other hand, is a corporate restructuring strategy where a financially stronger entity takes over a less financially capable business to form a larger organization. It happens when one business acquires over 50% of shares to take over another company. In this case, there’s no formation of a new business, but rather the smaller entity ceases to exist. The acquiring company is larger in size, structure, and operations.
Mergers vs. Acquisitions
- In a merger, two companies amalgamate to form a new company. In an acquisition, one larger company buys out a smaller one to increase its size.
- In a merger, two entities dissolve to form one new larger entity. In an acquisition, there’s no formation of a new business.
- A merger, in most cases, is a friendlier and planned corporate restructuring strategy. An acquisition can be hostile or involuntary.
- A merger happens between two businesses of the same size or nature. These businesses seek to amalgamate their strengths and weaknesses to perform better. In an acquisition, a more substantial business overpowers a smaller one and takes it over.
- A merger entails more complicated legal formalities compared to an acquisition.
- A new name is required when businesses merge, but this is not necessary for acquisition. – In a merger, the power difference is almost negligent as compared to an acquisition where the acquiring company holds power and dictates the terms.
- New stocks are issued in a merger, but this doesn’t happen in an acquisition. If you need business advisory for your company in Windham, NH, or surrounding areas, talk to us today.
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